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2016-2017-2018
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
TREASURY LAWS AMENDMENT (ENTERPRISE TAX PLAN NO. 2) BILL 2017
SUPPLEMENTARY EXPLANATORY MEMORANDUM
(Circulated by authority of the
Treasurer, the Hon Scott Morrison MP)
Table of contents
Glossary................................................................................................. 1
General outline and financial impact ...................................................... 3
Chapter 1 Amendments to Treasury Laws Amendment
(Enterprise Tax Plan No. 2) Bill 2017........................... 5
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ADI Authorised deposit-taking institution
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
Rates Act Income Tax Rates Act 1986
Bill Treasury Laws Amendment (Enterprise Tax
Plan No. 2) Bill 2017
1
General outline and financial impact
Amendments to Treasury Laws Amendment (Enterprise Tax
Plan No. 2) Bill 2017
The amendments to the Bill will ensure that the corporate tax rate for
large ADI's will be retained at 30 per cent.
Date of effect: Part 5 of Schedule 1 to the Bill applies from the
2023-24 income year.
Proposal announced: Not previously announced.
Financial impact: The amendments will have nil revenue impact over the
forward years to 2021-22.
3
Chapter 1
Amendments to Treasury Laws
Amendment (Enterprise Tax Plan No. 2)
Bill 2017
Outline of chapter
1.1 The amendments to the Bill will ensure that the corporate tax
rate for large ADI's will be retained at 30 per cent.
Detailed explanation of new law
Amendments 1 and 2
1.2 Amendments 1 and 2 make minor amendments to modify the
commencement provisions in section 2 of the Bill. These amendments are
necessary as a consequence of other amendments that are being made to
the Bill.
Amendment 3
1.3 Amendment 3 will amend Part 5 of Schedule 1 to the Bill to
insert a definition of large ADI into the Rates Act (so that it has the same
meaning as in the ITAA 1997). [Schedule 1, item 5A of the Bill, definition of
'large ADI' in subsection 3(1) of the Rates Act]
Amendments 4 to 8
1.4 Amendments 4 to 8 will amend Part 5 of Schedule 1 to the Bill.
1.5 These amendments will amend the Rates Act to specify that the
corporate tax rate for large ADIs will be 30 per cent. [Schedule 1, items 6A, 7,
8, 13 and 13A of the Bill, subsection 23(1A), subsection 23(2), paragraph 23(3)(b),
paragraph 23A(a) and section 24 of the Rates Act]
1.6 As a consequence, large ADIs will not benefit from the phased
reduction in the corporate tax rate from 30 per cent (for the
2022-23 income year) to 25 per cent (for the 2026-27 income year and
later income years).
1.7 If a large ADI is a member of a tax consolidated group, the
30 per cent large ADI corporate tax rate will apply to the taxable income
of the consolidated group to work out the group's income tax liability.
5
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
Amendment 9
1.8 Amendment 9 will amend Part 5 of Schedule 1 to the Bill.
1.9 In certain circumstances the trustee of a trust is liable to pay
income tax on the net income of the trust. If the beneficiary of the trust is
a corporate tax entity, the trustee must pay tax at the corporate tax rate.
1.10 Therefore, amendment 9 makes a consequential amendment to
the Rates Act so that, if a large ADI is a beneficiary of a trust, the trustee
will be liable to tax at the 30 per cent large ADI corporate tax rate on the
large ADI's share of the net income of the trust. [Schedule 1, item 15 of the
Bill, paragraph 28(a) of the Rates Act]
Amendments 10 to 15
1.11 Amendments 10 to 15 will make consequential amendments to
Parts 6 to 8 of Schedule 1 to the Bill to ensure that large ADIs will not
benefit from the phased reduction in the corporate tax rate from
30 per cent (for the 2022-23 income year) to 25 per cent (for the
2026-27 income year and later income years). [Schedule 1, items 19, 23, 27, 31,
35 and 39 of the Bill, subsection 23(3)(b) and section 23A of the Rates Act]
Amendment 16
1.12 Amendment 16 will insert new Part 8A into Schedule 1 to the
Bill.
1.13 The amendments will amend the ITAA 1997 to insert a
definition of large ADI into the ITAA 1997. A company will be a
large ADI for an income year if the company is an Australian resident
company that, either:
• disregarding the consolidation single entity rule:
- the company is an ADI; and
- the total liabilities of the ADI for any quarter in the
income year, as reported under the applicable reporting
standard, exceeds the large ADI threshold for the quarter;
or
• the company is the head company of a consolidated group
and one or more subsidiary members of the group would
satisfy these requirements for the income year.
[Schedule 1, item 40K of the Bill, definition of 'large ADI' in subsection 995-1(1) of the
ITAA 1997]
1.14 The applicable reporting standard has the same meaning as in
the Major Bank Levy Act 2017. [Schedule 1, item 40G of the Bill, definition of
'applicable reporting standard' in subsection 995-1(1) of the ITAA 1997]
6
Amendments to
1.15 The large ADI threshold for the quarter starting on 1 July 2017
is $500 billion (and, consistent with the major bank levy, is indexed
quarterly). [Schedule 1, items 40A, 40B, 40C, 40D, 40E, 40F, 40H, 40J and 40K of the
Bill, section 960-265, 960-270, 960-275, 960-280, 960-290 and the definitions of
'indexation factor', 'index number' and 'large ADI threshold' in subsection 995-1(1) of
the ITAA 1997]
1.16 Therefore, most (but not all) ADI's that are liable to pay the
major bank levy will be large ADI's for income tax purposes that will be
subject to the 30 per cent large ADI corporate tax rate.
1.17 In addition, if a large ADI is a member of a tax consolidated
group, the head company of the consolidated group is taken to be a
large ADI.
Amendment 17
1.18 Amendment 17 will make consequential amendments to Part 9
of Schedule 1 to the Bill to clarify that:
• the amendments to insert new Part 8A apply to the
2023-24 income year and to later income years; and
• the amendments made by Part 5 and new Part 8A also apply
for the purposes of determining the corporate tax rate for
imputation purposes for the 2023-24 income year.
[Schedule 1, subitems 41(9) and (10)]
Amendment 18
1.19 Amendment 18 will make consequential amendments to Part 1
of Schedule 2 to the Bill.
1.20 Under the company imputation system, when an Australian
corporate tax entity distributes profits to its members, the entity has the
option of passing to those members credit for income tax paid by the
entity on those profits. This is done by franking the distribution.
1.21 The amount of franking credits that can be attached to a
distribution cannot exceed the maximum franking credit for the
distribution (section 202-60 of the ITAA 1997). The maximum franking
credit for a distribution is worked out by reference to the corporate tax
rate.
1.22 Amendment 18 will make consequential amendments to the
imputation system so that the maximum franking credit for a distribution
made by a large ADI reflects the 30 per cent large ADI corporate tax rate.
In this regard, for the purposes of determining the maximum franking
credit for a distribution for an income year, the corporate tax rate is based
on the ADI's status as a large ADI for the previous income year.
7
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017
[Schedule 2, items 1 to 2 of the Bill, definitions of 'corporate tax rate' and corporate tax
rate for imputation purposes' in subsection 995-1(1) of the ITAA 1997]
Amendments 19, 36 and 37
1.23 Amendment 19 will make consequential amendments to Part 1
of Schedule 3 to the Bill.
1.24 The amendment will modify the definition of statutory
percentage in subsection 160AAB(1) so that, if a large ADI is also a life
insurance company, the tax offset available to policyholders who hold life
insurance policies with the company reflects the 30 per cent large ADI
corporate tax rate. [Schedule 3, item 1 of the Bill, definition of 'statutory percentage'
in subsection 160AAB(1) of the ITAA 1936]
1.25 The amendment will also modify the definition of standard
corporate tax rate in subsection 177A(1) of the ITAA 1936 so that, if a
large ADI is subject to diverted profits tax, the amount of diverted profits
tax that is payable is worked out based on the 30 per cent large ADI
corporate tax rate. [Schedule 3, item 1 of the Bill, definition of 'standard corporate
tax rate' in subsection 177A(1) of the ITAA 1936]
1.26 Amendments 36 and 37 make consequential amendments to
Schedule 4 to the Bill relating to the definition of standard corporate tax
rate in subsection 177A(1) of the ITAA 1936.
Amendments 20, 21, 24, 25, 28, 29, 32 and 33
1.27 Amendments 20, 21, 24, 25, 28, 29, 32 and 33 make
consequential amendments to Schedule 3 to the Bill to modify examples
in the income tax law which illustrate the operation of certain provisions
so that those examples apply to a corporate tax entity that is not a large
ADI. These amendments are necessary to ensure that the calculations in
the examples are correct. [Schedule 3, items 2, 3, 9, 10, 16, 17, 23 and 24 of the Bill,
sections 36-17 and 36-55 of the ITAA 1997]
Amendments 22, 26, 27, 30, 31, 34 and 35
1.28 Amendments 22, 26, 27, 30, 31, 34 and 35 will also amend
Schedule 3 to the Bill.
1.29 Sections 65-30 and 65-35 of the ITAA 1997 relate to the
operation of the tax offset carry forward rules. These amendments make
consequential amendments to sections 65-30 and 65-35 so that, if a large
ADI is entitled to a carry forward tax offset, the rate of the tax offset
reflects the 30 per cent large ADI corporate tax rate. [Schedule 3, items 6, 7,
13, 14, 20, 21, 27 and 28 of the Bill, subsections 65-30(2) and 65-35(3A) of the
ITAA 1997]
8
Amendments to
Amendment 23
1.30 Amendment 23 will amend Part 1 of Schedule 3 to the Bill to
make a consequential amendment to section 713-545 of the ITAA 1997 so
that, if a large ADI that is also a life insurance company joins a
consolidated group, the franking surplus in its franking account is
appropriately transferred to the head company of the group. [Schedule 3,
item 8A of the Bill, subsection 713-545(6) of the ITAA 1997]
9
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